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Chapter4MutualFundsandOtherInvestmentCompanies67MultipleChoiceQuestions1.Whichoneofthefollowingstatementsregardingopen-endmutualfundsisfalse?A)Thefundsredeemsharesatnetassetvalue.B)Thefundsofferinvestorsprofessionalmanagement.C)Thefundsofferinvestorsaguaranteedrateofreturn.D)BandC.E)AandB.Answer:CDifficulty:ModerateRationale:Noinvestmentoffersaguaranteedrateofreturn.2.Whichoneofthefollowingstatementsregardingclosed-endmutualfundsisfalse?A)ThefundsalwaystradeatadiscountfromNAV.B)Thefundsredeemsharesattheirnetassetvalue.C)Thefundsofferinvestorsprofessionalmanagement.D)AandB.E)Noneoftheabove.Answer:DDifficulty:ModerateRationale:Closed-endfundsaresoldattheprevailingmarketprice.3.Whichofthefollowingfunctionsdomutualfundcompaniesperformfortheirinvestors?A)RecordkeepingandadministrationB)DiversificationanddivisibilityC)ProfessionalmanagementD)LowertransactioncostsE)Alloftheabove.Answer:EDifficulty:EasyRationale:Mutualfundsareattractivetoinvestorsbecausetheyofferallofthelistedservices.Chapter4MutualFundsandOtherInvestmentCompanies684.MultipleMutualFundshadyear-endassetsof$457,000,000andliabilitiesof$17,000,000.Therewere24,300,000sharesinthefundatyear-end.WhatwasMultipleMutual'sNetAssetValue?A)$18.11B)$18.81C)$69.96D)$7.00E)$181.07Answer:ADifficulty:ModerateRationale:(457,000,000-17,000,000)/24,300,000=$18.115.GrowthFundhadyear-endassetsof$862,000,000andliabilitiesof$12,000,000.Therewere32,675,254sharesinthefundatyear-end.WhatwasGrowthFund'sNetAssetValue?A)$28.17B)$25.24C)$19.62D)$26.01E)$21.56Answer:DDifficulty:ModerateRationale:(862,000,000-12,000,000)/32,675,254=$26.016.DiversifiedPortfolioshadyear-endassetsof$279,000,000andliabilitiesof$43,000,000.IfDiversified'sNAVwas$42.13,howmanysharesmusthavebeenheldinthefund?A)43,000,000B)6,488,372C)5,601,709D)1,182,203E)Noneoftheabove.Answer:CDifficulty:ModerateRationale:($279,000,000-43,000,000)/$42.13=5,601,708.996.Chapter4MutualFundsandOtherInvestmentCompanies697.PinnacleFundhadyear-endassetsof$825,000,000andliabilitiesof$25,000,000.IfPinnacle'sNAVwas$32.18,howmanysharesmusthavebeenheldinthefund?A)21,619,346,92B)22,930,546.28C)24,860,161.59D)25,693,645.25E)Noneoftheabove.Answer:CDifficulty:ModerateRationale:($825,000,000-25,000,000)/$32.18=24,860,161.59.8.Mostactivelymanagedmutualfunds,whencomparedtoamarketindexsuchastheWilshire5000,A)beatthemarketreturninallyears.B)beatthemarketreturninmostyears.C)exceedthereturnonindexfunds.D)donotoutperformthemarketE)Noneoftheaboveisacorrectstatement.Answer:DDifficulty:EasyRationale:Mostactivelymanagedmutualfundsfailtoequalthereturnearnedbyindexfunds,possiblyduetohighertransactionscosts.9.PoolsofmoneyinvestedinaportfoliothatisfixedforthelifeofthefundarecalledA)closed-endfunds.B)open-endfunds.C)unitinvestmenttrusts.D)REITS.E)redeemabletrustcertificates.Answer:CDifficulty:EasyRationale:Unitinvestmenttrustsarefundsthatinvestinaportfolio,oftenfixed-incomesecurities,andholdittomaturity.10.Investorsinclosed-endfundswhowishtoliquidatetheirpositionsmustA)selltheirsharesthroughabroker.B)selltheirsharestotheissueratadiscounttoNetAssetValue.C)selltheirsharestotheissueratapremiumtoNetAssetValue.D)selltheirsharestotheissuerforNetAssetValue.E)holdtheirsharestomaturity.Answer:ADifficulty:ModerateRationale:Closed-endfundsharesaresoldonorganizedexchangesthroughabroker.Chapter4MutualFundsandOtherInvestmentCompanies7011.Closedendfundsarefrequentlyissuedata______toNAVandsubsequentlytradeata__________toNAV.A)discount,discountB)discount,premiumC)premium,premiumD)premium,discountE)Noconsistentrelationshiphasbeenobserved.Answer:DDifficulty:ModerateRationale:Closed-endfundsaretypicallyissuedatapremiumtoNetAssetValueandsubsequentlytradeatadiscount.12.Atissue,offeringpricesofopen-endfundswilloftenbeA)lessthanNAVduetoloadsandcommissions.B)greaterthanNAVduetoloadsandcommissions.C)lessthanNAVduetolimiteddemand.D)greaterthanNAVduetoexcessdemand.E)lessthanorgreaterthanNAVwithnoapparentpattern.Answer:BDifficulty:DifficultRationale:Open-endfundsareredeemableondemandatNAVsotheyshouldneversellforlessthanNAV.However,loadsandcommissionscanincreasethepriceaboveNAV.13.WhichofthefollowingstatementsaboutRealEstateInvestmentTrustsistrue?A)REITSinvestinrealestateorloanssecuredbyrealestate.B)REITSraisecapitalbyborrowingfrombanksandissuingmortgages.C)REITSaresimilartoopen-endfunds,withsharesredeemableatNAV.D)Alloftheabovearetrue.E)BothAandBaretrue.Answer:EDifficulty:ModerateRationale:RealEstateInvestmentTrustsinvestinrealestateorreal-estate-securedloans.Theymayraisecapitalfrombanksandbyissuingmortgages.Theyaresimilartoclosed-endfundsandsharesaretypicallyexchangetraded.Chapter4MutualFundsandOtherInvestmentCompanies7114.In2004theproportionofmutualfundsspecializingincommonstockswasA)21.7%B)28.0%C)54.1%D)73.4%E)63.5%Answer:CDifficulty:ModerateRationale:SeeTable4.1.15.In2004theproportionofmutualfundsspecializinginbondswasA)15.9%B)28.0%C)54.1%D)73.4%E)63.5%Answer:ADifficulty:ModerateRationale:SeeTable4.1.16.In2004theproportionofmutualfundsspecializinginmoneymarketsecuritieswasA)21.7%B